Colombia swaps domestic debt, extends maturities

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Colombia has eased its short-term debt burden on Tuesday in a record 6.5 trillion pesos ($3.52 billion) swap for longer-term bonds as Latin America’s No. 5 economy cashed in on its new investment-grade status.

The Andean nation’s debt exchange was the largest in Colombia’s history and accompanies strong economic growth, better-than-expected tax revenues and a slim fiscal deficit.

Finance Minister Juan Carlos Echeverry said the extended debt maturities, along with healthy foreign reserves and better-than-expected tax revenues, help insulate Colombia as international financial markets become less predictable.

“We’re creating another cushion for the economy, preparing for whatever uncertainty,” he told reporters. “It’s good news that Colombia will need less debt over the next three years.” Colombia’s finance ministry said that thanks to the swap it would issue 1.7 trillion pesos less in domestic debt than previously planned next year. The ministry had originally expected to auction 20 trillion pesos in TES bonds in 2012.

The government took in local debt maturing in 2012, 2013 and 2014 worth 6.5 trillion pesos in exchange for bonds maturing in 2015, 2018 and 2026, according to the finance ministry. The ministry said demand in the swap reached 8.7 trillion pesos

The freshly issued 2026 bond will become a new benchmark, part of an effort to make Colombia’s local debt market more attractive to institutional investors. Experts and market makers polled by Reuters last week on average predicted about $1.7 billion of debt would be exchanged but the government offered better-than-expected terms.

Colombia has become a safer country over the last decade thanks in part to a U.S.-backed military push against drug-running leftist guerrillas and other outlawed groups. The improved security has helped Colombia attract billions of dollars in foreign investment, and was cited as one reason the three major ratings agencies anointed the South American nation with investment-grade status earlier this year.

($1=1,843,26 Colombian pesos)

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